I'm going to try something a little different today. Recently there's been a handful of interesting articles/analyses/press releases on companies I own, so I thought I'd provide the links and do some light commentary around them.
First there's Terra Nova (TTT). As discussed in previous posts, the company is basically an investment vehicle for Michael Smith. But since no acquisitions have been made, owning TTT requires a bit of blind faith in Smith. In this vein, here's one of the best analyses I've found on his historical track record: http://seekingalpha.com/article/290755-15-for-15-years-michael-j-smith-s-outstanding-track-record?source=yahoo.
Then there's Sears. They're spinning off Orchard Supply, started selling Craftsmen tools at Costco, and hired a new CFO. Taken individually these may not sound like much, but taken together this may signify the beginning of a transformation from a retail operation to a brand/real estate/asset holding company. Here's a good blurb on the Craftsmen part: http://seekingalpha.com/article/292376-sears-holdings-externalizing-brands-could-be-major-catalyst-for-stock?source=yahoo. Here's the Wikipedia page on the new CFO: http://en.wikipedia.org/wiki/Robert_Schriesheim. Clearly, Schriesheim is a turnaround/restructure guy - my guess is Sears wouldn't have hired him unless this is their intent AND he wouldn't have accepted the job unless he judged there was a reasonable likelihood of succeeding. And lastly, if you're sick of my bullish sentiments, here's a good commentary with a bit more of an even keel: http://seekingalpha.com/article/292409-whether-we-should-throw-in-the-towel-on-eddie-lampert-and-sears-holdings?source=yahoo.
And what about JOE? Well, regular readers know I'm a huge fan of Bruce Berkowitz. In fact, his involvement with St. Joe is one of the main reasons I bought the stock (http://mevsemt.blogspot.com/2011/05/new-coattails-to-ride.html). Additionally, Berkowitz has been an investor in LUK (my largest holding) for 10+ years. So what's the connection? Well, LUK has done commercial/residential real estate development on the Florida panhandle, and JOE's recent appointments/hires of Brady, Bienvenue, and Keil all come from LUK. Frankly, it wouldn't surprise me to see LUK and JOE partner up sometime in the near future. Lastly, JOE has recently agreed to let Berkowitz acquire up to 50% of their shares (he currently owns 30%), so my guess is he's confident in their prospects.
Well, I hope you enjoyed the commentary and links! And I always like hearing from my readers, so feel free to email me with any comments or questions (mevsemt@gmail.com).
Showing posts with label Opinions and Observations. Show all posts
Showing posts with label Opinions and Observations. Show all posts
Sunday, September 18, 2011
Wednesday, August 10, 2011
Cash and Cojones, Part II
Back in May I wrote a post titled "Cash and Cojones," (http://mevsemt.blogspot.com/2011/05/cash-and-cojones.html) in which I said the following:
Recently I've read a handful of articles that basically say the same thing in different ways: proceed with caution. Or, to put it more colorfully, in early 2009 you only needed two things to make a killing: cash and the cojones to commit it. Ironically, if you had those two things in 2005-2007 you probably got killed. So what does the market feel like today? Well, while we may not be quite at the excesses of 2005-07, we're definitely nowhere near the palpable fear of early 2009.
So the real question is what’s an investor to do? Obviously I have no idea what the right answer is (remember, I'm just some guy with a blog), but I’ve been focused more and more on mitigating risk and less and less on reaching for returns.
So, out of a general sense of concern and nervousness I managed to keep a large % of my portfolio in cash. In fact, at the end of Q2 my cash position was 37% (http://mevsemt.blogspot.com/2011/06/q2-2011-returns.html). However, over the recent days/weeks the fear in the market has grown steadily and, while it might not be 2009 all over again, I'm wondering if maybe now is the time to start using some of that dry powder...
With that in mind I decided to dip my toe in the water by adding to my SHLD LEAPS. Specifically, I bought Jan 2013 $95 call options (10 contracts at $3.00) for a total outlay of $3,010.76.
On a side note there are a ton of stocks I've added to my watch list, some of them are new (MS, JEF, AMD) and some are old friends (SD, USG, NRG). As always, if I buy or sell anything I'll do a quick write up that day. Good luck everyone, and for those of you worried about the market decline just remember - this too shall pass.
Questions? Comments? Email mevsemt@gmail.com.
Recently I've read a handful of articles that basically say the same thing in different ways: proceed with caution. Or, to put it more colorfully, in early 2009 you only needed two things to make a killing: cash and the cojones to commit it. Ironically, if you had those two things in 2005-2007 you probably got killed. So what does the market feel like today? Well, while we may not be quite at the excesses of 2005-07, we're definitely nowhere near the palpable fear of early 2009.
So the real question is what’s an investor to do? Obviously I have no idea what the right answer is (remember, I'm just some guy with a blog), but I’ve been focused more and more on mitigating risk and less and less on reaching for returns.
So, out of a general sense of concern and nervousness I managed to keep a large % of my portfolio in cash. In fact, at the end of Q2 my cash position was 37% (http://mevsemt.blogspot.com/2011/06/q2-2011-returns.html). However, over the recent days/weeks the fear in the market has grown steadily and, while it might not be 2009 all over again, I'm wondering if maybe now is the time to start using some of that dry powder...
With that in mind I decided to dip my toe in the water by adding to my SHLD LEAPS. Specifically, I bought Jan 2013 $95 call options (10 contracts at $3.00) for a total outlay of $3,010.76.
On a side note there are a ton of stocks I've added to my watch list, some of them are new (MS, JEF, AMD) and some are old friends (SD, USG, NRG). As always, if I buy or sell anything I'll do a quick write up that day. Good luck everyone, and for those of you worried about the market decline just remember - this too shall pass.
Questions? Comments? Email mevsemt@gmail.com.
Monday, May 30, 2011
Cash and Cojones
Recently I've read a handful of articles that basically say the same thing in different ways: proceed with caution. Or, to put it more colorfully, in early 2009 you only needed two things to make a killing: cash and the cojones to commit it. Ironically, if you had those two things in 2005-2007 you probably got killed. So what does the market feel like today? Well, while we may not be quite at the excesses of 2005-07, we're definitely nowhere near the palpable fear of early 2009.
So the real question is what’s an investor to do? Obviously I have no idea what the right answer is (remember, I'm just some guy with a blog), but I’ve been focused more and more on mitigating risk and less and less on reaching for returns. This means keeping a high % of cash and only making new investments if I feel the downside is already baked into the stock price (CSCO, BAC, JOE). Additionally, I’m thinking about trimming AHS as it’s been bouncing around its 52-week high.
So, while my conservative stance may come with opportunity costs in the form of missed returns, I’m sleeping well at night AND in the case of a market sell-off I’ll be able to swoop in and pick up some bargains. Remember, even a cursory glance at history tells us market corrections tend to happen suddenly BUT with surprising regularity – real estate crash, tech crash, LTCM, savings-and-loan, 1987 crash, etc.
Finally, if you’ve got some spare time I highly recommend reading this memo by Howard Marks (http://www.oaktreecapital.com/MemoTree/How%20Quickly%20They%20Forget%2005_25_11.pdf) – it’s very readable and encapsulates my thoughts on the current market much better than I ever could. And of course I always recommend reading the Hussman weekly commentary, the most recent of which is here (http://www.hussman.net/wmc/wmc110523.htm).
So the real question is what’s an investor to do? Obviously I have no idea what the right answer is (remember, I'm just some guy with a blog), but I’ve been focused more and more on mitigating risk and less and less on reaching for returns. This means keeping a high % of cash and only making new investments if I feel the downside is already baked into the stock price (CSCO, BAC, JOE). Additionally, I’m thinking about trimming AHS as it’s been bouncing around its 52-week high.
So, while my conservative stance may come with opportunity costs in the form of missed returns, I’m sleeping well at night AND in the case of a market sell-off I’ll be able to swoop in and pick up some bargains. Remember, even a cursory glance at history tells us market corrections tend to happen suddenly BUT with surprising regularity – real estate crash, tech crash, LTCM, savings-and-loan, 1987 crash, etc.
Finally, if you’ve got some spare time I highly recommend reading this memo by Howard Marks (http://www.oaktreecapital.com/MemoTree/How%20Quickly%20They%20Forget%2005_25_11.pdf) – it’s very readable and encapsulates my thoughts on the current market much better than I ever could. And of course I always recommend reading the Hussman weekly commentary, the most recent of which is here (http://www.hussman.net/wmc/wmc110523.htm).
Saturday, September 25, 2010
uU Investing
I just read a fascinating essay that really resonated with me, it's called "Investing in the Unknown and Unknowable," by Richard Zeckhauser. It can be found here: http://www.hks.harvard.edu/fs/rzeckhau/unknown_unknowable_PUP.pdf
Basically, the article asserts that by seeking out situations where the outcome is unknown and unknowable (uU) an investor can potentially make outsized returns. Now let's look at an example of what a uU investment is and what it isn't:
I don't know exactly what Coke's (KO) finances are going to look like in 5 years, but I know the company is still going to be selling sugar water and I can make a reasonable guess about their cash flow - this is NOT a uU investment. IMO the large integrated banks, such as Citigroup, Bank of America, or JP Morgan, are great examples of uU investments. I have no insight into potential government regulation and capital requirements, and coming up with an estimate of their loan losses is quite difficult. In other words, these companies are "black boxes." Further, I have no idea what the economy will look like - will we be in the middle of a "lost decade" like Japan in the 90's, or will be experiencing devastating inflation, like the late 70's?
The problem with investing in the Coke's of the world is even though I can come up with a good estimate of their fair value, so can everyone else. In other words, even if I decide Coke is undervalued and therefore an attractive stock, there's someone on the opposite side of the trade who did the same analysis and decided Coke was overvalued - and she's probably smarter than me (having gone to Harvard or Wharton for her MBA). And it's not just the Coke's of the world, there are very smart people EVERYWHERE in investing; and they're arb'ing away the pricing inefficiencies in small-caps, micro-caps, bonds, distressed debt, etc. - this is why it's so hard to beat the market consistantly and over long periods.
BUT if I decide to invest in a big bank I don't have this problem, i.e. everyone is having a huge degree of difficulty figuring out their fair value - so what type of environment does this create? Well, I think people in general have a natural aversion toward uncertainty, so a lot of current holders are dumping their stock. Additionally, our friend with her Wharton MBA isn't interested in buying these stocks - afterall if she's wrong she is subject to "Monday morning quarterback" risk, which in the investment world can get you fired. In other words, uU investing sidesteps the normal mechanisms that generally keep securities priced efficiently.
If you already read the linked essay you'll notice the author makes a strong case for Warren Buffet being a uU investor. You can also make the case that Mohnish Pabrai with his "low risk, high uncertainty" mantra fits in this camp. Morningstar's fund manager of the decade Bruce Berkowitz is also a uU investor: he's investing in the banks right now, he invested in health care companies while (i.e. not after) the government was overhauling health care, he owns stocks like SHLD, JOE, LUK, and FUR - all of which are classic uU stocks. And of course there are many other value investors who are also uU investors in disguise: David Tepper, Ian Cumming, Michael Burry, Prem Watsa, Seth Klarman, Carl Icahn, etc. etc.
This brings me to my next point: I love it when I hear value folks talk about whipping out Excel, plugging in financial statements, explicitly projecting bull/bear cases for 7 years, trying to figure out the right cost of equity (BTW it's 12%, it's always 12%), and then passing b/c there's too much uncertainty. Rather I'd argue, for some portion of their portfolio, investors should seek out uncertainty, try to quantify the downside (or like B. Berkowitz says, "Kill the company"), make sure you're not overpaying, and let the upside take care of itself.
As for my portfolio, I consider LUK, SD, and HAWK to be uU stocks to one degree or another. On my watch list I'd consider CHK, NRG, BH, FUR, SHLD, TTT, MFCAF, BAC, COF, and JPM to be uU's. Of course it's tricky figuring out what to buy, but if you go several posts back I disguss my checklist, which is my starting point.
Basically, the article asserts that by seeking out situations where the outcome is unknown and unknowable (uU) an investor can potentially make outsized returns. Now let's look at an example of what a uU investment is and what it isn't:
I don't know exactly what Coke's (KO) finances are going to look like in 5 years, but I know the company is still going to be selling sugar water and I can make a reasonable guess about their cash flow - this is NOT a uU investment. IMO the large integrated banks, such as Citigroup, Bank of America, or JP Morgan, are great examples of uU investments. I have no insight into potential government regulation and capital requirements, and coming up with an estimate of their loan losses is quite difficult. In other words, these companies are "black boxes." Further, I have no idea what the economy will look like - will we be in the middle of a "lost decade" like Japan in the 90's, or will be experiencing devastating inflation, like the late 70's?
The problem with investing in the Coke's of the world is even though I can come up with a good estimate of their fair value, so can everyone else. In other words, even if I decide Coke is undervalued and therefore an attractive stock, there's someone on the opposite side of the trade who did the same analysis and decided Coke was overvalued - and she's probably smarter than me (having gone to Harvard or Wharton for her MBA). And it's not just the Coke's of the world, there are very smart people EVERYWHERE in investing; and they're arb'ing away the pricing inefficiencies in small-caps, micro-caps, bonds, distressed debt, etc. - this is why it's so hard to beat the market consistantly and over long periods.
BUT if I decide to invest in a big bank I don't have this problem, i.e. everyone is having a huge degree of difficulty figuring out their fair value - so what type of environment does this create? Well, I think people in general have a natural aversion toward uncertainty, so a lot of current holders are dumping their stock. Additionally, our friend with her Wharton MBA isn't interested in buying these stocks - afterall if she's wrong she is subject to "Monday morning quarterback" risk, which in the investment world can get you fired. In other words, uU investing sidesteps the normal mechanisms that generally keep securities priced efficiently.
If you already read the linked essay you'll notice the author makes a strong case for Warren Buffet being a uU investor. You can also make the case that Mohnish Pabrai with his "low risk, high uncertainty" mantra fits in this camp. Morningstar's fund manager of the decade Bruce Berkowitz is also a uU investor: he's investing in the banks right now, he invested in health care companies while (i.e. not after) the government was overhauling health care, he owns stocks like SHLD, JOE, LUK, and FUR - all of which are classic uU stocks. And of course there are many other value investors who are also uU investors in disguise: David Tepper, Ian Cumming, Michael Burry, Prem Watsa, Seth Klarman, Carl Icahn, etc. etc.
This brings me to my next point: I love it when I hear value folks talk about whipping out Excel, plugging in financial statements, explicitly projecting bull/bear cases for 7 years, trying to figure out the right cost of equity (BTW it's 12%, it's always 12%), and then passing b/c there's too much uncertainty. Rather I'd argue, for some portion of their portfolio, investors should seek out uncertainty, try to quantify the downside (or like B. Berkowitz says, "Kill the company"), make sure you're not overpaying, and let the upside take care of itself.
As for my portfolio, I consider LUK, SD, and HAWK to be uU stocks to one degree or another. On my watch list I'd consider CHK, NRG, BH, FUR, SHLD, TTT, MFCAF, BAC, COF, and JPM to be uU's. Of course it's tricky figuring out what to buy, but if you go several posts back I disguss my checklist, which is my starting point.
Wednesday, September 22, 2010
Investing Checklist
Like many people out there, investing is something I do on the side - I have a full time job, a rental property, and a 9 month old baby girl - so you could say my goal of outperforming the S&P is a bit audacious given that the vast majority of my time is spent on non-investing activities.
However, by using an investment checklist I save a ton of time. Basically, it enables me to pass on the majority of investments without doing any heavy lifting, and I can dedicate serious time to only what I perceive are the best opportunities. Anyway, here's the checklist:
However, by using an investment checklist I save a ton of time. Basically, it enables me to pass on the majority of investments without doing any heavy lifting, and I can dedicate serious time to only what I perceive are the best opportunities. Anyway, here's the checklist:
- Insider buying (http://www.gurufocus.com/) or insider ownership (http://www.morningstar.com/)
- Near 52-week low
- Significant discount to Morningstar's fair value estimate (yes, I subscribe to Morningstar)
- "Guru" buying (http://www.gurufocus.com/)
- For options only: high degree of leverage
- Significant discount to my fair value estimate
- Downside protection - i.e. low risk / high uncertainty profile
- Asymmetric payoff
Wednesday, August 25, 2010
Current Holdings and Random Musings
Well so far it's been a very tough Q3, both in absolute and relative terms. After marginally outperforming the S&P through Q2 things have taken a turn for the worse, and YTD I'm underperforming the S&P by a wide margin. However, with a highly concentrated portfolio, big swings in performance are bound to happen, and hopefully recent history isn't indicative of things to come.
For my current holdings, AHS in particular has been a thorn in my side. The company recently reported results, which weren't bad by any means. HOWEVER, the company also announced an acquisition which will be completely paid for with newly issued stock, thereby materially diluting existing shareholders. My estimate is this will destroy about $2 to $4 in value for existing shareholders. Of course, the stock has gone from $8'ish to $4'ish, which I think is an example of a typical "Mr. Market" over reatcion. All things considered, I think this stock is worth $10 to $15 per share (assuming management doesn't make a habit of diluting shareholders).
GMXR has also been a big thorn in my side. Natural gas stocks in general have been hammered, and GMXR in particular has been killed because of its high level of debt. I think the risk/reward proposition at today's price is pretty compelling, and I'm considering doing one of two things; 1) doubling down 2) trading GMXR for a similarly punished E&P company. The logic behind #2 is that my account is taxable, and with significant gains from SHLD, USG, WTM, and DFS, I'm sitting on roughly 28K of capital gains for 2010 (ouch!).
Generally I try to stay away from making broad market predictions, I figure I'm better served by trolling for pockets of opportunity. HOWEVER, I do read the predictions and observations of other smart investors, and I try to incorporate any inferences/insight when I make high-level portfolio allocation decisions. IMHO the two best sources for this are John Hussman's weekly comments (www.hussmanfunds.com) and pretty much anything published on PIMCO's website (although I'm partial to Bill Gross's monthly commentary). Again, this is just my opinion, but if you read everything they've published over the last six months (which will probably take a day or so) you'll automatically become a better investor.
Anyhow, right now I've got about 40K (or 43%) of my portfolio in cash (obviously this is a huge %), so clearly I'm worried about downside risk. This is in the realm of gut feel, but personally I'd be much more surprised if the DOW goes to 12K than if it goes to 8K. And assuming it does go to 8K it'll be nice to have some cash on the sidelines waiting to be deployed.
For my current holdings, AHS in particular has been a thorn in my side. The company recently reported results, which weren't bad by any means. HOWEVER, the company also announced an acquisition which will be completely paid for with newly issued stock, thereby materially diluting existing shareholders. My estimate is this will destroy about $2 to $4 in value for existing shareholders. Of course, the stock has gone from $8'ish to $4'ish, which I think is an example of a typical "Mr. Market" over reatcion. All things considered, I think this stock is worth $10 to $15 per share (assuming management doesn't make a habit of diluting shareholders).
GMXR has also been a big thorn in my side. Natural gas stocks in general have been hammered, and GMXR in particular has been killed because of its high level of debt. I think the risk/reward proposition at today's price is pretty compelling, and I'm considering doing one of two things; 1) doubling down 2) trading GMXR for a similarly punished E&P company. The logic behind #2 is that my account is taxable, and with significant gains from SHLD, USG, WTM, and DFS, I'm sitting on roughly 28K of capital gains for 2010 (ouch!).
Generally I try to stay away from making broad market predictions, I figure I'm better served by trolling for pockets of opportunity. HOWEVER, I do read the predictions and observations of other smart investors, and I try to incorporate any inferences/insight when I make high-level portfolio allocation decisions. IMHO the two best sources for this are John Hussman's weekly comments (www.hussmanfunds.com) and pretty much anything published on PIMCO's website (although I'm partial to Bill Gross's monthly commentary). Again, this is just my opinion, but if you read everything they've published over the last six months (which will probably take a day or so) you'll automatically become a better investor.
Anyhow, right now I've got about 40K (or 43%) of my portfolio in cash (obviously this is a huge %), so clearly I'm worried about downside risk. This is in the realm of gut feel, but personally I'd be much more surprised if the DOW goes to 12K than if it goes to 8K. And assuming it does go to 8K it'll be nice to have some cash on the sidelines waiting to be deployed.
Monday, June 14, 2010
Sucker's Rally?
It's been awhile since my last post, so I apologize to my regular readers - I think there are 2 of you :)
Last week I read a fascinating article in the Huffington Post, entitled "Remember: In 1930, They Didn't Known It Was 'the Great Depression' Yet" (http://www.huffingtonpost.com/henry-blodget/remember-in-1930-they-did_b_605814.html). I highly recommend reading it in its entirety, but the basic gist is after the 1929 crash there was brief period defined by renewed optimism, speculation, IPO's, etc. which of course turned out to be a sucker's rally.
Basically, the market went from its 1929 peak of 381 to an initial bottom of 199. This was followed by a rally that pulled the market all the way to 294 over the next six months. Finally, after this "sucker's rally" the market once again turned negative and bottomed out at 42 eight months later (that's right, 42!).
The point of the article is to draw similarities between what's unfolding today and what happened back then - was it a sucker's rally when the DOW went from its March 2009 low of 6.5K to its May 2010 high of 11.2K? Should we expect the market to hit new lows over the coming months and years?
Obviously I have no clue.
Interestingly enough, George Soros recently gave a speech in which he elaborated on this very subject (http://www.gurufocus.com/forum/read.php?1,97265,97464#msg-97464). During this speech, he said such warm and fussy things like:
Last week I read a fascinating article in the Huffington Post, entitled "Remember: In 1930, They Didn't Known It Was 'the Great Depression' Yet" (http://www.huffingtonpost.com/henry-blodget/remember-in-1930-they-did_b_605814.html). I highly recommend reading it in its entirety, but the basic gist is after the 1929 crash there was brief period defined by renewed optimism, speculation, IPO's, etc. which of course turned out to be a sucker's rally.
Basically, the market went from its 1929 peak of 381 to an initial bottom of 199. This was followed by a rally that pulled the market all the way to 294 over the next six months. Finally, after this "sucker's rally" the market once again turned negative and bottomed out at 42 eight months later (that's right, 42!).
The point of the article is to draw similarities between what's unfolding today and what happened back then - was it a sucker's rally when the DOW went from its March 2009 low of 6.5K to its May 2010 high of 11.2K? Should we expect the market to hit new lows over the coming months and years?
Obviously I have no clue.
Interestingly enough, George Soros recently gave a speech in which he elaborated on this very subject (http://www.gurufocus.com/forum/read.php?1,97265,97464#msg-97464). During this speech, he said such warm and fussy things like:
- The current situation in the world economy is “eerily” reminiscent of the 1930's with governments under pressure to narrow their budget deficits at a time when the economic recovery is weak.
- “The collapse of the financial system as we know it is real, and the crisis is far from over. Indeed, we have just entered Act II of the drama.” (Act I is defined by replacing private debt with public debt, "thereby reinforce[ing] the excess credit and leverage that had caused the crisis in the first place." Act II began "when financial markets started losing confidence in the credibility of sovereign debt," with Greece and the Euro taking center stage.
So if the bear case I described above does indeed come to pass it could mean very bad news for the average Joe who invests in common stocks (i.e. me). The question is how should one position their portfolio if they believe there's a 10% chance it'll play out (or 25%, or 5%, etc.)? Remember, there's always a chance that we make it through this mess unscathed, and if you hold too much cash you could miss out on significant upside...
Personally, I've got about a third of my portfolio in cash. Not only does this act as a safety blanket should things head south, but it will also give me the opportunity to snatch up some bargains in this scenario. Conversely, the other 2/3rds of my portfolio is spread over a small handful of stocks that I feel are undervalued in aggregate, so should the market rally I feel these securities will do quite well.
Thursday, May 20, 2010
Random Musings
A little over a month ago I wrote a post entitled "Feeling Fearful" (which can be found here http://mevsemt.blogspot.com/2010/04/feeling-fearful.html). During this time I sold several stocks (SHLD and USG) and allocated about 30% of my portfolio to cash - in retrospect, it looks like my timing couldn't have been more lucky. Since then, the market has turned decidedly more fearful as the Eurozone mess has drawn an increasing amount of investor attention and oil gushes into the gulf.
Ironically, the oil spill disaster could prove beneficial for some of the stocks I own. A likely consequence of this mess is increased government regulation and decreased offshore drilling in the short to medium term. This in turn could lead to an increase in the price of oil and natural gas (natural gas in particular, b/c it can't be imported from overseas nearly as easily). IF this does indeed play out I'd expect SD, GMXR, and EXC to reap the benefit (SD and GMXR have onshore operations and EXC would benefit from an environment with higher energy prices in general).
On a negative note I expect the call options for FAF to expire worthless. In my initial post I wrote that a broad market sell off could cause this, and of course within a couple days the market began selling off...
HOWEVER, I think any further market sell off could present an attractive buying opportunity. So, with about 30% (about $34K) of my portfolio in cash, I am constantly refining and evaluating my watch list. Current stocks that I find interesting include BAX, APOL, CNX, GENZ, AHS as well as existing holdings SD, GMXR, and EXC.
As always I'll post about any transactions.
Ironically, the oil spill disaster could prove beneficial for some of the stocks I own. A likely consequence of this mess is increased government regulation and decreased offshore drilling in the short to medium term. This in turn could lead to an increase in the price of oil and natural gas (natural gas in particular, b/c it can't be imported from overseas nearly as easily). IF this does indeed play out I'd expect SD, GMXR, and EXC to reap the benefit (SD and GMXR have onshore operations and EXC would benefit from an environment with higher energy prices in general).
On a negative note I expect the call options for FAF to expire worthless. In my initial post I wrote that a broad market sell off could cause this, and of course within a couple days the market began selling off...
HOWEVER, I think any further market sell off could present an attractive buying opportunity. So, with about 30% (about $34K) of my portfolio in cash, I am constantly refining and evaluating my watch list. Current stocks that I find interesting include BAX, APOL, CNX, GENZ, AHS as well as existing holdings SD, GMXR, and EXC.
As always I'll post about any transactions.
Thursday, April 15, 2010
Feeling Fearful
It's been quite a ride over the last year! I remember in March 2009 the fear in the market was almost palpable. Now, 13 months later, all the major indexes continue to soar, seemingly defying gravity. IMO the market, in aggregate, has turned greedy - so is it time for the individual investor to turn fearful? I think so...
These days I find myself asking, "Where is the opportunity, where is the value, and most importantly where is the risk?" I've been struggling to find individual stocks that offer an acceptable margin of safety and potential return. Additionally, several portfolio holdings of mine are approaching my guess of their intrinsic value. As a result, my portfolio's cash position has grown to about 30% and I'm very seriously considering selling several more holdings. Specifically, these are USG, WTM, and COV. However, this is only half the story. I have found a small handful of stocks that seem attractively priced. Among these are GENZ, EXC, SD, MON, ISCA, APOL, and FNF.
My sense of it is that a lot of investors spend a great deal of time picking stocks at the expense of portfolio management. David Swensen is the master of this - in his excellent book, "Unconventional Success," he lays out a fairly simple but powerful plan based primarily on portfolio management. Additionally, I'd argue that one of the main reasons the Magic Formula works so well is because there is a defined, rigorous plan around portfolio management (although everyone seems to focus on the stock picking aspect).
I have to admit, holding on to USG is tempting because it has the potential to be my first 10-bagger. And it was difficult for me to sell SHLD because I kept thinking it might be the next Berkshire. But the fact of the matter is "hope" isn't an investment strategy. SHLD hit my estimate of its intrinsic value and USG is quickly approaching it. IF I can find stocks that are priced at a greater discount to my estimate of their intrinsic value then, by definition, they have a better margin of safety and better potential return. Of course I could turn out to be wrong for any given stocks I buy/sell, but I think the process I've laid out is right.
As always I'll post about any stocks I buy or sell.
These days I find myself asking, "Where is the opportunity, where is the value, and most importantly where is the risk?" I've been struggling to find individual stocks that offer an acceptable margin of safety and potential return. Additionally, several portfolio holdings of mine are approaching my guess of their intrinsic value. As a result, my portfolio's cash position has grown to about 30% and I'm very seriously considering selling several more holdings. Specifically, these are USG, WTM, and COV. However, this is only half the story. I have found a small handful of stocks that seem attractively priced. Among these are GENZ, EXC, SD, MON, ISCA, APOL, and FNF.
My sense of it is that a lot of investors spend a great deal of time picking stocks at the expense of portfolio management. David Swensen is the master of this - in his excellent book, "Unconventional Success," he lays out a fairly simple but powerful plan based primarily on portfolio management. Additionally, I'd argue that one of the main reasons the Magic Formula works so well is because there is a defined, rigorous plan around portfolio management (although everyone seems to focus on the stock picking aspect).
I have to admit, holding on to USG is tempting because it has the potential to be my first 10-bagger. And it was difficult for me to sell SHLD because I kept thinking it might be the next Berkshire. But the fact of the matter is "hope" isn't an investment strategy. SHLD hit my estimate of its intrinsic value and USG is quickly approaching it. IF I can find stocks that are priced at a greater discount to my estimate of their intrinsic value then, by definition, they have a better margin of safety and better potential return. Of course I could turn out to be wrong for any given stocks I buy/sell, but I think the process I've laid out is right.
As always I'll post about any stocks I buy or sell.
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